SALEM -- Plans to raise taxes on Oregon corporations and upper-income earners, which seemed to have all the momentum of a moving freight train, crashed in dramatic fashion late Wednesday when Senate Democrats failed to muster enough votes from their own caucus.

The derailment tore a $733 million hole in a tenuously balanced state budget and sent legislative leaders scrambling to find a compromise that would let them adjourn as planned by the end of the month.

It also left what had been a carefully choreographed session in a state of limbo and confusion.

"It's hard to separate what's real from the melodrama," said a disappointed Sen. Ginny Burdick, D-Portland, after the vote. "What's real is, we have 17 votes and we need 18."

In Oregon, tax increases require a three-fifths majority vote to pass. Senate Democrats needed to lock in all 18 of their members because no Republicans offered support.

But Sen. Mark Hass, D-Beaverton, broke ranks, apparently after long discussions Tuesday with Portland business leaders. Hass said he wants the tax increases to be temporary, which is what a plan promoted by the Oregon Business Association calls for.

He likened the tax increase to a homeowner getting flashlights and blankets from a neighbor during a storm, then not giving them back when the storm passes. "Sorry, but that's not the Oregon way," Hass said.

His "no" vote sank a proposed package of tax and fee increases for corporations. Senators immediately voted to table that measure along with a companion measure that raises income taxes on people who make more than $125,000 and households that make more than $250,000.

Tabling means the bills cannot be changed but can be brought back to the Senate floor for another vote. No one seemed sure late Wednesday what the next step is for the bills, both of which passed the House on Tuesday.

Despite the parliamentary maneuvers, Hass said it would be easy to change the bills to make the taxes temporary, which would assure his vote. Others, however, were not so sure, because that would mean running the bills back through the House, where votes could easily change.

The disruption and the possibility of making another $733 million in cuts to the 2009-11 budget angered a number of lawmakers.

"I'm prepared to cut the living daylights out of budgets if that's what you want," said Sen. Vicki Walker, D-Eugene. Walker chairs the subcommittee that writes budgets for natural resource programs.

Wednesday's action marked the first meltdown in a session that, until now, has been tightly managed by Democratic leaders, who control commanding majorities in both chambers. The two bills appeared to be part of an unstoppable juggernaut of Democratic tax and fee increases and budget decisions designed to send lawmakers packing by the end of the month.

Senate President Peter Courtney issued a statement saying he is "disappointed that we came up short today," but he remains committed to leaving by June 30. He didn't make himself available to answer questions.

Gov. Ted Kulongoski said he hopes the Senate will reconsider.

"If this doesn't pass, it makes for very, very difficult decisions ahead," said his spokeswoman Anna Richter Taylor.

Lawmakers could dip further into state reserve accounts to make up some of the difference, but the governor wants to keep at least half of that money in case the economy continues to erode.

Ryan Deckert, executive director of the Oregon Business Association, said the easy way out for lawmakers is to accept a slightly smaller corporate tax increase and make it temporary.

"There's actually a path for an agreement," Deckert said. "Birds are chirping, and there are little yellow flowers on the path."

His optimism contrasted sharply, however, with that of Democratic senators. During the floor debate, Sen. Alan Bates, D-Ashland, practically begged Hass to reconsider.

"I implore you," Bates repeated three times, looking directly at his longtime colleague. "The state will go into chaos without these bills."

Groups advocating for higher spending on schools and other state programs were stunned by Wednesday's outcome and said they would intensify their lobbying efforts.

"We're talking thousands of teacher layoffs statewide" if the Legislature is forced to cut the amount of money the taxes would have raised, said Otto Schell, legislative director for the statewide Parent Teachers Association. "It will be a meat-axe to the K-12 budget."

Burdick, a chief backer of the tax proposals, called Wednesday's vote "a serious bump in the road." But, she said, "it is not the end of the story."

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